Having increasing prices in gold isn’t always a good news for producers and investors. A recent announcement from the World Gold Council said that there is a high chance of Indian gold demand dropping to 750-800 tons by the end of this year in comparison with 860 tons from 2015.
The main reason for this is that gold prices have been going up steadily, making it too expensive. While investors are quite happy about the bullish market, this situation could reverse performance by the end of this year and the first semester of 2017.
As you might know already, India is the second gold consumer in the world, only behind China, which is also decreasing its gold demand for the upcoming years.
The gold market has been positively bullish, stimulated by uncertainty regarding US economy, Europe’s decisions on monetary policies, and other geopolitical events of great relevance. But massive changes in Indian gold consumption could be a decisive factor for the precious metal’s prices.
But a higher price isn’t the only factor affecting demand. In recent months, India’s jewelry industry was on a strike, demanding big changes in the tax system. The government increased taxes on this sector, causing great unrest and leading jewelers to an indefinite strike.
Another inciting factor for the strikes was the imposition of a Pan Card number for every jewelry purchase above 200,000 Indian Rupees. According to jewelers who went on strike, this imposition would greatly affect the consumer, ultimately leading to losses.
Monsoon Benefits All
Conversations between the jewelry industry and the government led to positive changes, getting producers go back to work. But don’t think that this was the decisive element changing jewelers’ minds.
The jewelry industry isn’t capable of being absence during these seasons, even if the circumstances were different. With a highly positive monsoon, gold demand from consumers will exceed expectations.
The Risk is Still There
With the jewelers strike out of the equation, Indian economy is only facing high prices. The gold market remains bullish and most forecasts indicates that it isn’t going to change.
In fact, with the great uncertainty that is being experienced on a worldwide scale, gold prices are more likely to increase. With the US elections, unclear FED’s plans for the future, the Brexit, and actual monetary policies being used by the European Central Bank, many investors have their doubts regarding Forex and stocks.
So far, the yellow metal seems the most suitable alternative. Even with China and India decreasing their numbers, gold is could remain bullish. In comparison, India’s expectations about demand are more negative than the Chinese ones.
Recent official reports told the media that China is planning to decrease demand growth, instead of demand itself. This means that the sector will continue to expand, despite the blow coming from India.